The stock of repossessed homes on Abbey's hands has grown, reflecting the malaise in the housing market, and its share of the mortgage and savings markets has slipped.
Given an average house price of pounds 62,000 and Abbey's build-up of more than 9,000 repossessed properties, the value of homes on its books is now nearly pounds 600m.
Abbey executives said there was no clear evidence of recovery in the housing market, and announced a proposal to kick-start house sales using government tax credits.
They saw the downward trend in mortgage arrears and repossessions as a hopeful sign.
The bank, formerly the largest building society, raised its dividend by 9 per cent to 3.8p. The shares closed 3 1/2 p lower at 255p.
Peter Birch, group chief executive, said of the housing market: 'It's a very difficult situation at present. But there is some glimmer of hope. The rate of repossessions and arrears is slowing. In July, for the first time since 1988, we disposed of more properties than we took into possession.'
Sir Christopher Tugendhat, the chairman, said the group had proved resilient in testing conditions. First-half pre-tax profits of pounds 270m compared with pounds 308m in the first-half of 1991.
Abbey said it was considering tougher rules and higher rates for some home loans because providers of mortgage indemnity insurance were now offering lower cover for riskier customers and for those who wanted 100 per cent mortgages. 'The company is considering ways of pricing loans to reflect risk more closely,' Mr Birch said.
Loan provisions more than doubled to pounds 138m from pounds 58m in the same period last year. Of the total provisions, the charge for UK residential mortgages was pounds 108m - three times higher than a year ago.
Abbey's stock of properties in possession stood at 9,609 by the end of June, compared with 8,732 at the end of 1991.
Because house prices have continued their fall, the bank has increased average provisions per repossessed property, to pounds 14,500 from pounds 9,100 at June 1991. That means that when Abbey National is able to sell the homes it has repossessed, it is taking an average loss of pounds 14,500.
The bank also took a general provision of pounds 30m against British residential mortgages, reflecting its uncertainty of any recovery in the housing market.
Mr Birch said: 'The key measures of house price affordability . . . all show that housing is at its most affordable level for some time. What is lacking is confidence.'
Abbey National said new repossessions in the half-year fell to 4,139 from 4,636 in the first half of last year.
The number of mortgages in arrears by six months or more rose eight per cent in the past six months, to 20,700. But the number of mortgages in arrears of under six months has declined.
In the UK mortgage market, Abbey's market share dipped to 10.9 per cent from 12.5 per cent a year ago. In savings, Abbey has lost even more ground. Its share of the market fell to 5.6 per cent compared with 12.5 per cent, after National Savings products competed head-to-head with mortgage lenders.
Abbey made a pre-tax profit of pounds 229m in UK retail operations, down from pounds 300m in the first half of last year. Treasury operations made pounds 38m, up from pounds 20m. Estate agency lost pounds 10m, against a pounds 7m loss a year ago.
Scottish Mutual, the insurance company that became part of Abbey National at the beginning of this year, made a pounds 16m profit. The division including European and offshore subsidiaries, financial services and home building made a pounds 1m loss after a pounds 30m provision, largely for European business.
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